Personal Liability of Business Owners for Unpaid Wages

          Maryland courts are increasing their application of the law of personal liability to business owners in certain cases.  Business owners need to be aware of this trend and, rather than seek to insulate themselves from decisions regarding employee compensation, they need to step up and make sure that such decisions are being made correctly. 

          Last week, the United States District Court for the District of Maryland denied a business owner’s Motion to Dismiss, where the claim was brought against the business owner personally.  That means that the business owner will have to litigate a case in which a former employee is seeking to hold the owner personally liable for an $825,000 commission.

          In Macsherry v. Sparrows Point, LLC et al, No. 1:2015cv00022 - ELH (D. Md. 2015), the plaintiff filed suit against his former employer – the company itself, and the President of the company personally.  The plaintiff sought to recover a commission owed to him from a $110,000,000 real estate transaction and based his claim on (among other theories) the Maryland Wage Payment and Collection Law (“MWPCL”).

          The parties disputed whether the plaintiff legitimately stated a claim under the MWPCL, specifically focused on whether the plaintiff adequately alleged that the President – sued personally – was legally plaintiff’s “employer” as defined by the MWPCL.

The Plaintiff’s Arguments

          The plaintiff alleged that the President – individually – was an “employer” and therefore liable, by virtue of his leadership role, direction and control over employment decisions, including the payment of wages to Plaintiff generally and the payment of the particular commission at issue.  Additionally, HR had directed the plaintiff to the President “with questions regarding his wages and the commission at issue”.  Finally, the President was the individual who hired plaintiff, signed the contract governing the plaintiff’s employment, made the decision to terminate plaintiff’s employment and generally supervised and controlled all employees including plaintiff.

The President of the Company’s Arguments

          The President asserted that the plaintiff “attempts to dispense with corporate formalities and hold the President responsible for the alleged obligations of the corporate entities, Maryland law however, does not permit this.”  Further, the President maintained that he engaged in conduct on behalf of the corporate entities which does not create individual liability under Maryland law.  Finally, the President argued that the allegations did not plausibly demonstrate that the President either entered into an employment relationship or a contract with plaintiff individually.  Instead, at most, the plaintiff’s allegations reveal that the president merely carried out limited and remote supervisory tasks in his capacity as a member of the LLC.

The Court’s Ruling

          The Court engaged in an extensive analysis of the legal question presented.  The Court noted that in MWPCL cases, “the usual corporate boundaries do not necessarily insulate” company owners.  The court concluded that the term “employer” is a broad concept, and its meaning is not restricted by traditional corporate protections.  Looking to the “totality of the circumstances” the Court analyzed the “economic realities of the President’s relationship with the employee” and ultimately denied the President’s Motion to Dismiss.  The claim against the President – individually – was allowed.

          At Luchansky Millman, we focus on helping employers understand the steps they need to take to minimize the risk of personal liability.  Occasionally, personal liability is unavoidable.  In that case, Luchansky Millman’s employment attorneys will use their extensive courtroom experience to represent your company and zealously advocate on your behalf.  If you are interested in discussing personal liability avoidance procedures, or need to discuss threatened or actual litigation, call Bruce Luchansky or Judd Millman at 410.522.1020.

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